New proposals following the collapse of Carillion
The Public Audit Office suggests that the collapse of Carillion will cost the taxpayer £148 million. This does not include the £2.6 billion hole in the pension fund which will fall on the Pension Protection Fund. Was this just down to bad luck or was there something very wrong with the governance of the companies comprising the Carillion Group?
Either way the government have reacted by opening a consultation in March this year, based on a consultation paper to reduce the risk of major company failures through shortcomings of governance or stewardship and to strengthen responsibility of directors of firms when they are approaching insolvency.
A perceived weakness at present is a lack of accountability in a group corporate structure where the directors of a holding company with effective control of subsidiaries can play fast and loose with the corporate responsibilities which come with control of a company, because they are insulated from direct responsibility.
Whilst there is already provision at Company House to identify persons with significant control the new proposals are likely to include better records of the structure of directors’ inter-company positions within a group, strengthening the role of shareholders in stewarding companies in which they have investments and requiring large companies to report each year on how directors are fulfilling their duty to promote the success of the company.
In addition the consultation looks to ensure that the directors and ultimate holding or parent company can be held to account and if necessary penalised where the sale of an insolvent subsidiary causes harm to creditors or other stakeholders in a way which was foreseeable at the time of sale. Penalties being considered include disqualification and personal liability.
A proposal which features in the consultation involves the investigation of a director’s conduct where a company has been struck off and dissolved without any formal winding up. The expense and time in subjecting such companies to insolvency proceedings can rarely be justified by creditors who have already suffered losses.
Another key proposal is the potential reversal of asset sales by “White Knights” or investors who have swooped to rescue companies and then strip the assets with punitive management fees, excessive interest on loans, charges over company property and excessive director remuneration.
Historically, errant directors have only really been brought to book where there is a significant creditor interest. It remains to be seen whether the government are prepared to fund the implementation of any of these proposals.
This article first appeared in the East Anglian Daily Times 19th June 2018.
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